Executive officers have clearly established personal liability in many areas of regulation, but did you know that, under the chain of responsibility (CoR) laws, personal liability can extend to senior employees who take on management roles?
Any person "who is concerned or takes part in the management of" a corporation that commits an offence under the CoR laws can be held personally liable.
That means that the scope for personal liability extends beyond directors or chief operating officers to other positions of seniority. Individuals in these roles will need to take similar precautions to meet their CoR obligations.
But when will an employee be senior enough or have enough management responsibility to fit the definition of an executive officer and therefore risk personal liability? In the past, the Corporations Act 2001 (Cth) and case law had made the position relatively clear, but the Heavy Vehicle National Law (HVNL) may have widened the definition in a significant way.
HVNL: The new definition
Under the HVNL, an 'executive officer' of a corporation means 'a director' or "any person, by whatever name called and whether or not the person is a director of the corporation, who is concerned or takes part in the management of the corporation."
The second part of the definition of 'executive officer' is defined by function. This means any person "who is concerned or takes part in the management of" a corporation which commits an offence under the CoR laws can be personally charged.
It is important to note that this might extend to persons who exercise the powers and functions of a manager, but are not actually employed or remunerated as managers.
Clearly, the provision is designed to enable the authorities to target those individuals who are responsible for the operative decisions of companies in the logistics sector.
The flexibility of the definition of 'executive officer' expands the pool of people who may be charged under the executive officer liability provisions.
What we know already: The Corporations Act definition of 'officer'
Although you should rely on the HVNL definition of an 'officer' and not the Corporations Act definition of an officer when considering liability in the road transport industry, the Corporations Act offers some examples of which individuals would be considered officers under both Acts.
Under section 9 of the Corporations Act, in addition to a director or company secretary, an 'officer' means a person:
- "who makes, or participates in making decisions that affect the whole or a substantial part of the business" of the corporation;
- who has "the capacity to affect significantly the corporation's financial standing";
- "in accordance with whose instructions or wishes the directors of the corporation are accustomed to act".
By the Corporations Act definition, only someone who holds a senior position within a company and who has high-level authority and input into critical business decisions will be an 'officer'. Examples in case law include people who:
- are in charge of large, significant and discrete business divisions;
- participate in making significant financial or investment decisions, whether or not subject to board approval;
- are corporate general counsel;
- are in a position of direct reporting to the board of directors, or who are "capable of dealing directly with board members";
- have authority over significant financial expenditure (relative to the company's budget) or direct control over their own budget or the budgets of others; and
- supervise a number of other senior managers.
Remember that the definition of an officer under the Corporations Act appears to be narrower than the new definition under the HVNL. This means that if any of these examples and indicators apply to you, it is very likely that you would be considered an 'officer', and therefore potentially personally liable for CoR breaches under the HVNL.
Why the new HVNL definition is different
The definition of an 'officer' under the HVNL ("any person...who is concerned or takes part in the management of the corporation") is not expressly limited to those involved in very high-level managerial functions. On one view, this could extend to any person who participates in any part of the management of a corporation.
It is worth noting that until express guidance is given by the courts, the prudent approach is to assume that any person meaningfully involved in management is potentially able to be held personally liable as an 'officer' of a corporation for any corporate CoR offence.
In order to avoid liability, officers must take 'all reasonable steps' to avoid the commission of any CoR offence and/or mitigate the risk of any such offence occurring. What may constitute 'all reasonable steps' will be discussed in future articles.
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.